Government's Disgrace

October 17, 2005

FOR A WINDOW on politics and all its failings, consider the current fight over pension reform. It's a fight that reveals the cowardice of the Bush administration and the venality of Congress. It demonstrates the government's inability to grapple seriously with public policy -- even when the case for action seems too obvious to ignore.

The story begins with the hole in the nation's defined-benefit pension plans, the type that -- unlike 401(k) plans -- promise a fixed proportion of salary upon retirement. The rules governing these plans are dysfunctional: They allow companies to promise workers lavish benefits while setting aside too little money to pay those benefits when the time comes. Rather than keep workers happy with wage increases, which would have to be paid for with real money, financially pressed firms often bribe them with false promises of big pensions. When these firms go bust, employees get smaller pensions than cynical managers had promised them. And taxpayers, who guarantee pensions up to some $45,000 per retiree, have to rescue the bankrupt pension plans.

In January the Bush administration proposed a remedy. It's not remotely radical: It just says that companies making pension promises ought to fund them properly and that they should pay the government a fair insurance premium for guaranteeing benefits. Nor is the urgency of the administration's plan disputed: Bankrupt firms such as United Airlines keep dumping their pension plans, with the result that the federal agency that insures such plans has a deficit of about $30 billion, up from $23 billion a year ago. But although the administration's plan was nothing more than common-sensical, the process of enacting it has been anything but that.

Congress has an appalling record on pension legislation, which is why the pension rules are dysfunctional in the first place. Business and labor groups share a common interest in lobbying for lax funding rules, which allow them to keep promising big pensions while sticking the taxpayers with part of the cost. Nobody lobbies on behalf of the taxpayers. This is why the last round of pension legislation, a year ago, made the underfunding problem worse.

This time there was talk of doing better. The House pensions committee produced a bill that, while weaker than the administration's plan, was presented as a brave effort to deal with a gathering storm. The Senate Finance Committee produced another bill, also somewhat diluted, and then added further dilutions after merging its proposal with a truly watery offering from the Senate pensions committee. The administration watched from the sidelines, saying little publicly. Until just over a week ago, the bills seemed headed for a smooth passage into law.

Then they hit a speed bump. In the Senate, which had already thrashed out two bills, passed them through two committees on a bipartisan basis and produced a "final" compromise, Sens. Mike DeWine (R-Ohio) and Barbara A. Mikulski (D-Md.) upset plans for a floor vote by demanding still more dilutions. These lacked majority backing, so the senators exploited the Senate's absurd rules to block the legislation indefinitely until their business allies got what they wanted.

You get a taste of the relationship between senators and lobbyists from an e-mail sent out by the American Benefits Council on Oct. 7. "With the active support of the Council, Senator Mike DeWine (R-OH), along with Senator Barbara Mikulski (D-MD), continues to press for an amendment," the group reported to its members. "DeWine called the Council to personally thank us for our steadfast support," it continued. That same day another business lobby, the ERISA Industry Committee, informed its shock troops: "Sen. DeWine has directly asked for our help in getting cosponsors" for his diluting amendment. Mr. DeWine and other senators will no doubt be rewarded for their efforts. On Thursday the American Benefits Council will host a thank-you lunch for Sen. Mike Enzi (R-Wyo.), the chairman of the Senate pensions committee. The invitation includes a line that reads: "Requested contribution: $1,000 PAC/$500 personal."

So the enemies of reform bogged down the legislation. Sen. Charles E. Grassley (R-Iowa), one of the authors of the Senate reform bill, complained that the DeWine-Mikulski maneuvers would worsen underfunding and "put more workers' pensions at risk." But then something else happened. On Tuesday the Congressional Budget Office published an analysis showing that it wasn't just the rogue amendment that would do that; both the Senate and House bills were so diluted that they would make the pension crisis worse, just as happened with the legislation that Congress passed last year. The same day Rep. George Miller (D-Calif.), the ranking Democrat on the House pensions committee, leaked an analysis by the Bush administration, which reached the same conclusion. So it turns out that legislation that had once been close to passage does the opposite of what's intended. Nobody in Congress was told this until it was almost too late.

This, unfortunately, says a lot about the Bush administration: about its incompetence in handling economic issues and its cowardice in dealing with Congress. At some point in the past fortnight or so, the administration must belatedly have done enough analysis to understand that the Senate and House bills were going in the wrong direction, but it didn't breathe a word. The idea of publishing numbers that would have forced it to veto a bill written by Republican committee chairmen appears to have been too much for the Bush team. Remember, Mr. Bush is the first president since John Quincy Adams to have completed a full term in the White House without vetoing a single bill.

The result is that the nation is ducking a clear challenge. Defined-benefit pension plans in companies nationwide are underfunded to the tune of $450 billion, and ultimately taxpayers may be on the hook for some of that. It's obvious that globalization is putting huge competitive pressure on old-line corporations -- the type most likely to have defined-benefit plans -- and that many of these may go bankrupt. It's also obvious that, with the coming baby bust, past pension promises can't be swept under the carpet anymore. And yet, however obvious, politicians are too corrupt and cowardly to tackle the problem.